In property insurance, what is the basic principle of indemnity?

The basic principle of indemnity in property insurance is centered around the idea of restoring the insured to their pre-loss condition. This principle ensures that the policyholder does not profit from an insurance claim but instead receives compensation equivalent to their financial loss, thus preventing any unjust enrichment. The goal is to bring the insured back to the same financial state they were in before the loss occurred.

This approach requires that the insurer assess the loss accurately and provide reimbursement or repair costs that reflect the actual damages incurred without exceeding the loss, maintaining fairness in the insurance process. It reinforces the purpose of insurance as a risk management tool rather than a mechanism for profit-making.

Other options hint at different interpretations or misconceptions about property insurance. For example, allowing for profit from insurance claims contradicts the core idea of indemnity and leads to moral hazard. Covering all losses irrespective of the cause also strays from this principle, as most insurance policies will have exclusions and limit coverage to specific perils. Lastly, focusing solely on medical expenses is an approach more relevant to health insurance rather than property insurance, where the concerns typically revolve around physical damage or loss of property.